3 Minute Gold News

A synopsis of an interview with Jim Rickards, New York Times bestselling author of The New Case for Gold, The Death of Money, Currency Wars and The Road to Ruin, by Max Keiser of The Keiser Report.

Jim is the editor of Strategic Intelligence, Chief Global Strategist for West Shore Funds, former general counsel for Long Term Capital Management, and a consultant to the U.S. Intelligence community and U.S. Department of Defense.

by: Elaine Diane Taylor

Topics:

Jim Rickards

Jim’s interview starts a 13:40, but Max and Stacy’s discussion before that is good so I’d say watch it all. ;)

TRUMP & THE ROAD TO RUIN

There are two different things going on.

Talking about normal economic cycles, business cycles and economic growth, Trump has a lot to offer and his policies will help to get the U.S. going in the right direction.

The problem is that a financial or systemic crisis is a different phenomena than the normal business cycle.

So, we’re still set for a major financial collapse that’s worse than 2008.

That will not be Trump’s fault but it could happen on his watch for reasons that have nothing to do with his policies.

When you’re talking about normal macro economic business cycle policies then what’s wrong with cutting taxes? Or less regulation? Or critical infrastructure spending? These are all the things Trump’s talking about and they’re good for the economy.

But none of them address the embedded problems of the systemic risk on a grotesque scale, and the way the bankers have organized the system in their favour.

The risk of a major financial crisis is out there regardless of Trump’s policies, and that’s the problem.

(Max: For the last 20 – 30 years we’ve seen an attempt to neutralize the business cycle with monetary policies like QE, to try to keep the bond market happy and so-called aggregate demand pumping. All this has done is defer the moment of truth and store up a much bigger break down.)

Two things have happened:

1. A lot of what should have been sorted out in 2008 did not happen. Those problems are still there.

2. We’ve added to the problems.

In Complexity Theory the worst thing that can happen in a system is an exponential function of scale. That means that if you double the banking system you don’t just double the risk, you increase the risk by 5 times or 10 times.

For example, right now we know there’s a problem with the San Andreas fault in California.

We know it could snap at any time and cause a massive earthquake with death and destruction. We hope it doesn’t happen but we know it will.

Does anyone think it’s a good idea to send in engineers and make the San Andreas fault bigger?

No one thinks that’s a good idea. We know there will be an earthquake, we just can’t predict when. But no one thinks we should make the fault line bigger.

Come over to the banking system and what we’re doing is making the fault line bigger by expanding derivatives, expanding bank balance sheets, and concentrating bank assets into fewer banks.

The worst that can happen is an exponential function of scale – doubling the size and getting an economic earthquake that’s not just double the size, but 5 times or 10 times worse than 2008.

There’s no reason not to expect a financial crisis sooner rather than later.

REPEALING DODD-FRANK ACT

(Max: Trump repealing Dodd-Frank may have the effect of adding to the leverage and defering the day of reckoning.)

Dodd Frank is 1,100 pages and is different than the original Glass-Steagal Act which worked well for 70 years or so before it was replaced.

Glass-Steagal was just 5 pages. It said you could either be a commercial bank or you could be an investment bank but you couldn’t be both.

They’re not going to repeal every word of the Dodd-Frank 1,100 pages.

The bank lobbyists run Washington.

Jim was in a closed-door meeting in Washington with Treasury officials charged with managing systemic risk, briefing those specific officials during the Obama administration, when Jim said, “The banks run this town.”, and an official agreed and said, “You’re right.”.

They’re not going to repeal the whole Dodd-Frank 1,100 pages.

The bank lobbyists seem to be focused on the thing that allows them to pay dividends and do stock buybacks with their shareholders.

Well, you take $100 billion out of bank capital, which will happen in the next financial crisis, and what are you left with? More leverage.

In other words, when you’ve got just as many assets, just as many off balance sheet assets, and just as many derivatives, and you take their $100 billion capital cushion away, which will happen when the system implodes, then that $100 billion is going to go on the taxpayers.

The scheme is that when the system implodes the loss will go onto the taxpayers.

Jim isn’t sure that the Trump administration understands that at a micro level. We’ll see.

The Trump administration hates regulations, Jim hates them too but there’s good regulation and bad regulation.

Bad regulation stands in the way of entrepreneurship, technology and small companies.

But you cannot have an unregulated banking system.

Remember, banks are subsidized by the taxpayers and government. They have FDIC insurance, which is under priced, and too-big-to-fail guarantees, the discount window, and the Federal Reserve.

You can’t subsidize the liability side of the balance sheet and then not regulate the asset side. That’s what happened in the S & L Crisis in the 1980s.

Jim would be in favour of no bank regulation but with no subsidies either — take away the discount window, the insurance and the Fed.

JUST SOCIETIES DON’T FAVOUR THE FEW

There’s a joke that if there’s 50 people at a bar and Bill Gates walks in, then suddenly on average everyone’s a billionaire.

It’s a true statement, on average everyone in the bar is a billionaire, but one guy is worth billions and everyone else could be on welfare.

The averages that economists and mainstream media use hide and mask a lot of distributional effects that are dangerous to society.

The problem is the system has been set up where a small number of people make a disproportionate amount of all the gains. Some gains are deserved but many are undeserved and the person just happened to be in the right seat at the right time.

Banks used to create wealth but they don’t anymore. They now extract wealth, and individual bankers make millions but they don’t contribute to society.

This is why Trump was elected and why the UK voted to leave the EU.

We don’t have free markets. We have a rigged system.

And this rigged system is becoming increasingly unstable.

GDP

GDP is a useful tool except in the case of China.

They wake up in the morning and say they’re going to have 7% GDP, and they do it by using state-owned banks and subsidies from construction.

You could build a $5 billion train station in my town and add $5 billion to the GDP, but no one in the town is going to pay $1,000 a ticket in order to pay for it.

In other words, if you borrow the money you’ll have the $5 billion in GDP, but you won’t be able to pay for it or pay the debt, so you’re just creating a debt bubble.

The Greek bank holiday and long lines to get a few euros for the day. Debt deals behind closed doors. The media telling us what opinions to have. China building islands in the South China Sea and claiming all the international waves. More dealing to come. More standing in line for those who owe. Who owes? There’s a long line of nations in debt and this is far from done.

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Preparing for the Fall live boutique album available on iTunes — featuring Wag the Dog, Black Swan Dive, American Pie and Gods of the Copybook Headings.

The copybooks of the early 1900s gave us all the wisdom we need. The sayings that were copied are the truths, the gods, of our world. All the empires who followed the gods of the marketplace instead have fallen, and there’s terror and slaughter when the gods of the copybook headings return. The lyrics are by Rudyard Kipling. One of my gurus.

See the bankers wave their Wall Street wands and conjure piles of paper green. Naked short selling is like betting that your neighbour’s house will burn down. But in this scenario it happens to burn down. If the bankers win then we lose the whole world as we know it. I wrote this in 2009, with a lyric “A little grease (Greece) is floating out to sea, and little pigs (Portugal, Italy, Greece and Spain) are bobbing up and down, they’ll send a storm and we’ll see, when the tide goes out who’s naked on the beach“, and it’s coming on now. The world is changing as we know it.

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Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.